Dow Slides After Fed Minutes Show Tapering May Start This Year

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Key Takeaways

• Dow Jones drops nearly 400 points on Wednesday, S&P500 loses over 1%
• Fed minutes show most officials agree to reduce monetary stimulus this year

Dow Slides After Fed Minutes

Stocks on Wall Street sold off in the last hour of the trading session on Wednesday after the Federal Reserve signaled it is preparing to slow down its asset purchases as soon as this year. While equities traded relatively flat during the session, after the US central bank released its minutes from the last policy meeting, losses across the board accelerated, leaving main benchmarks closing at session lows.

The Fed minutes, released Wednesday afternoon, covered the conclusions reached by the 18 members of the Federal Open Market Committee in relation to the Fed’s policies toward the US economy. The publication shows that most Fed officials agree that the economy has reached a phase in its recovery that allows the US central bank to start unwinding its asset purchases sometime this year.

Scaling Back Monetary Support

The news weighed on stocks, which have been partly buoyed by the same monetary stimulus since the pandemic began in March 2020. The meeting summary did not point to a specific month or date when the Fed should start the tapering process that would reduce the bank’s $120bn in monthly bond purchases.

The emerging consensus between officials regarding scaling back the ample monetary support has been rather expected by investors. Fed Chairman Jerome Powell, and other high-ranking Fed officials, have previously said the Fed will make sure to prepare the markets in advance before initiating the tapering process.

“Most participants noted that, provided that the economy was to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes from the July 27-28 meeting said.

Thus, to gradually reduce the pace of bond-buying this year would mean that the Federal Reserve, if approved by the committee, should start scaling back its monthly purchases. These include Treasury and mortgage securities at any of the central bank’s three remaining policy meetings this year.

Cryptocurrencies Struggle

The Dow Jones Industrial Average dropped 382.59 points, or 1.08%, to finish the session at 34,960.69. The S&P500 tumbled 47.81%, or 1.07%, to 4,400.27. The Nasdaq Composite declined 130.27 points, or 0.89%, to a close of 14,525.91.

The 30-stock Dow Jones and the broader S&P500 retreated for a second straight day, after notching all-time highs on Monday.

Futures contracts tied to the three major averages hover in negative territory on Thursday ahead of the opening bell in New York. Dow futures are lower by about 200 points, while S&P500 futures and Nasdaq futures are down by more than half a percent each.

Overseas, European bourses today are under pressure as investors remain cautious of a potential economic slowdown. Stocks across Europe held steady on Wednesday. The region-wide Stoxx 600 closed the day higher by less than 1 point, while indexes of individual economies in the bloc finished mixed.

UK’s FTSE100 and France’s CAC40 closed down by 0.16%, and 0.73%, respectively. The German DAX and the Spanish IBEX35 ended in positive territory, up 0.28%, and 1.18%, respectively.

Cryptocurrencies on Thursday are struggling to maintain the upside momentum that lifted the entire market to almost double its size over the past 30 days. Bitcoin is trading below the $45,000 mark, down roughly 1% on the day so far.